Why VIPs matter more than new customers

I bet you think the best way to grow your business is by acquiring new customers – and to some extent, that’s true. After all, every VIP customer was once a first-time customer.

However, to generate those elusive first-time visits, brands can pour unseemly amounts of money into acquisition campaigns with no way to track how much new business they generated. Unsurprisingly, this approach doesn’t drive predictable value for merchants and often ends up costing more money than it creates. When you look at the lifetime value of a customer, generally the costs invested in advertising to a first-time customer aren’t recovered until he makes a second, maybe even third visit back to the business.

That’s why it costs five to seven times more to acquire a customer than to drive an additional visit from an existing one.

Dollar for dollar, it’s more lucrative to invest in your existing customer base – especially when, according to research from Harvard Business School, increasing customer retention rates by just 5 percent increases profits by 25 percent to 95 percent. A customer who already knows and loves your brand might be prompted to come by again just from a personalized message, whereas someone unfamiliar with your brand needs a more enticing (read: higher-cost) carrot dangled in front of him.

Retention is a moneymaker, but VIP programs are the jackpot

The question becomes this:

How do I market to my existing customers?

First, determine who on earth they are. In the absence of data, it's impossible to target them once they’ve stepped outside the four walls of your business.

Take it a step further: Say you know who your customers are (maybe you’ve managed to collect every single customer’s email address – obviously, this is hypothetical). Even then, you’re still flying blind from a data perspective. The most important question becomes: Who are your top customers?

Targeting your high rollers can have the greatest return of any marketing campaign you launch. We’ve seen again and again that nearly 70% of a merchant's revenue comes from its top 25% of customers – this appears to be true across all offline businesses, with little variance. Entrepreneur found that 61% of small-business revenue comes from repeat customers, and repeat customers spend 67% more than new ones.

So, identifying top customers and flexing your marketing muscle in their direction is more profitable than those “spray and pray” acquisition tactics.

VIPs are out there, waiting for your love.

Bottom line: The customers who spend the most need to be identified and treated like the VIPs they are. As a merchant, the most important step becomes getting customer data in a way that doesn't disrupt or detract from the experience.

Many loyalty programs put far too many hurdles in front of customers, diminishing the likelihood of collecting customer information. Without that, it's impossible to identify and retain VIP customers. If you remove these hurdles, you will know exactly who your VIP’s are, and you can begin the very profitable process of keeping them loyal.